Memo of Financial Analysis
December 9, 2014
TO: KOHL COMPANY
FROM: SENA LOPEZ
RE: FINDINGS FROM VERTICAL AND HORIZONTAL ANALYSIS
DATE: 9TH DECEMBER 2014
I am writing to let you know the performance of the company (Kohl) as compared to its competitive company (J.C Penny) in the same industry.
Horizontal analysis: This also known as a trend analysis is used to evaluate financial statements over a period. Its main purpose is to determine if an increase or decrease have occurred. Kohl’s current assets are less by 11.38% from $6370. The reported gross profit of kohl’s is ($7032) which is higher than a penny by 1.03%. The net sales of Kohl Company are $18391 which is higher than a penny by 3.56%. From the ...view middle of the document...
Liquidity ratios measure the ability of a company to meet the short – term obligations when they fall due. Short-term creditors such as bankers and suppliers are more interested in this information to access liquidity. Both companies have a current ratio of more than one meaning that the companies have more current assets than current liabilities. The users of these ratios are shareholders of the company, the competitors, suppliers of the company and creditors.
Profitability ratios a measure returns that are generated by sales and the investments. This also measures the success of the company for a given period. It also measures their ability to obtain debt and equity financing, its liquidity position. The profitability ratios include rate of return on stockholder’s Equity (ROE), gross profit margin, net profit margin. The parties interested in these ratios are shareholders, employees, management, potential investors.
Solvency ratios measure the company ability to pay its long –term obligations or bankruptcy. The interested parties are potential investors, lenders, creditors, and shareholders. This allows us to see if the company can survive over an extended period of time. Also, their ability to pay interest and to repay the balance of a debt at its maturity.
The collected data reveals that the company has more current assets than current liabilities i.e. current ratio of kohl’s, and J.C penny are 2.1 and 2.4 respectively. Kohl’s has low financial risk 40.3% while J.C Penny has a higher financial risk 58.1%. Kohl’s gross profit is less than that of J.C penny but a higher net profit. The companies have no dividend yield at all. The asset turnovers are low. The free cash flow of kohl’s company is higher than J.C penny meaning that it is in good financial position.